What can an investor do now to avoid feeling like an idiot when the artificial intelligence bubble bursts? Contrary to what some clever dicks might say, cash is the only certainty for pessimists who seek short-term shelter from what might well prove to be a shocking stock market storm.

But this optimist believes that diversification — spreading risk over many different companies, countries and currencies — is a better strategy for long-term investors. That’s why, after a decade of running with the bulls and chasing soaring share prices in American technology giants, I have also been buying smaller European funds and stocks, as I have reported here.

First, though, let’s consider reasons to be fearful. Nvidia is an extreme example of the “new normal” of sky-high technology share valuations. It makes the graphics processing units that are necessary for AI and, with a market capitalisation of more than $4.4 trillion (£3.3 trillion), is the most valuable company in the world. With shares trading at about $185 on Friday, this business is now priced at an eye-stretching 52 times its corporate earnings — a price-to-earnings ratio that leaves no scope for disappointment.

To put that in perspective, even the iPhone-maker Apple, which is due to report earnings on Thursday, trades on a price-to-earnings ratio of 36. Shares I bought in February 2016, as reported here at that time, for the equivalent of $23.75, allowing for a subsequent four-for-one stock split, traded at $263 on Friday. It is the most valuable holding in my forever fund, representing about 8 per cent of its total value.

Second, multibillion-dollar inter-related investments by some big tech firms in each others’ shares are prompting sceptics to question whether these businesses are inflating each others’ valuations. For example, Nvidia says it will invest $100 billion in OpenAI — the unlisted and loss-making company that created ChatGPT, the fastest-growing app ever — which, in turn, says it will buy Nvidia chips for its new models.

Third, no tree grows all the way to the sky and share prices don’t rise forever, either. The Nasdaq index of technology shares in New York has doubled during the last five years, leaving London’s FTSE 100 benchmark lagging with a 61 per cent return. It is no wonder some tech investors are beginning to suffer bouts of vertigo.

Fourth, the collapse of two American specialist “private credit” lenders — First Brands and Tricolor — has raised fears of a domino effect. Two American regional banks, Western Alliance and Zions, have reported deficits amid allegations of fraud, causing shortfalls at larger, international banks. JP Morgan reported a $170 million loss and its chief executive, Jamie Dimon, said: “I probably shouldn’t say this, but when you see one cockroach, there’s probably more. And everyone should be forewarned at this point.”

• Why the prospect of an AI market crash doesn’t faze me

Nobody who invested through the global financial crisis, which began when another American bank, Lehman Brothers, went bust on September 15, 2008, will forget how the failure of one institution can affect others. As it happened, that was the night of my 50th birthday party and — without wishing to be too melodramatic — the atmosphere among City types who were there was reminiscent of Eva Braun’s bash in the bunker toward the end of the film Downfall.

Here and now, some sophisticates are recommending traded derivatives called “put” and “call” options, or contracts for difference (CFDs) as ways to make money when share prices fall. Put options confer the right — but not the obligation — to sell shares at a fixed price within a fixed period, which can prove profitable if the market price turns out to be lower. Call options allow you to buy shares at a locked-in price for a fixed period, with the expectation that the price will rise. CFDs are another form of speculative traded derivative, where returns — if there are any — are based on changes in underlying share prices between two dates.

Beware that, in a financial crisis the counterparty, or institution on the other end of these CFDs or options, may not be able to honour its commitment. Nor do derivatives yield any income, such as the dividends from many stock market funds and shares that can pay us to be patient while we wait for prices to recover.

All things considered, CFDs and options are more like betting on the gee-gees than investing in real businesses. That’s why the Financial Conduct Authority has barred dozens of overseas firms from marketing them as investments in Britain and reckons that “approximately 80 per cent of customers lose money in CFDs”.

• How to build a portfolio that keeps its value

By contrast, cash deposits up to £85,000 per person with authorised banks and building societies are guaranteed — at least in nominal, or face value, terms — by the Financial Services Compensation Scheme. Unfortunately, over anything other than the short term, inflation, which remained at 3.8 per cent for the year to September, is likely to erode the real value or purchasing power of cash.

While inflation is the insidious enemy of savers, compound capital growth is the friend of medium to long-term stock market investors. Barclays Bank has studied returns since 1899 and found that shares reflecting the changing composition of the London Stock Exchange beat cash in 77 per cent of all the five-year periods since then. If you could hold for a full decade, the historic probability of investors beating depositors increased to 91 per cent.

Those odds are good enough for me, which is why this long-term investor continues to reduce the risk of sky-AI valuations in American tech shares by also buying British and continental European rivals. Last month I told you about a new holding in the Newcastle-based bakery Greggs, which trades on a price-to-earnings ratio of less than 12 and yields 4.2 per cent dividend income.

• Is now a good time to invest in Greggs?

While Rachel Reeves does her best to kill the high street with higher taxes on jobs — and the closure of 68 Pizza Hut restaurants announced last week looks set to put 1,200 people out of work — I hope cost-conscious consumers will continue to enjoy Greggs’ sausage rolls.

More excitingly, shares in the Franco-Italian optical group, EssilorLuxottica, which makes a third of all the spectacle lenses on this planet, jumped 13 per cent in a single day just over a week ago. This Paris-listed business reported strong sales of smart glasses that look just like its other Oakley and Ray-Ban specs but can help folk like me whose hearing isn’t what it used to be. I told you about them in March 2019, when I invested 2 per cent of my life savings at €96 and they traded at €312 on Friday, making them my fourth-most valuable holding.

Meanwhile, shares in the chocolatier Barry Callebaut, which I bought for 766 Swiss francs in April, as reported here at that time, cost SwFr 1,196 on Friday and are now my ninth-most valuable holding. Mr Market, a notorious manic depressive, seems to be getting over his springtime despair about cocoa pod prices.

Savouring such sweet returns, I hope that investing internationally in a wide range of different businesses with real profits and dividends will diminish the risks inherent in stock markets. That might not sound very clever now but I reckon it will beat being wise before — or after — the AI bubble bursts.

Full disclosure: Ian Cowie’s shareholdings